The rise of the small insurer

Today is, in some ways, the grand opening of Obamacare. It’s the day that open enrollment begins for state health exchanges. But several of the nation’s largest health insurers are sitting out the exchanges. And this has created an opportunity for smaller companies to expand their business.

L.A. Care is a health plan provider located on the 10th floor of a high rise in downtown Los Angeles. It only offers plans to low-income individuals through Medicare and Medicaid. But starting today, anyone can buy private insurance form L.A Care.

“This is our first move into the market," says Howard Kahn, the CEO of L.A. Care. "So this is a big jump for us, and it’s in response to health care reform.”

Kahn took me to L.A Care’s call center, where dozens of employees sit in a tight grid of cubicles answering phones. But not for long.

“What we are going to do is move our entire call center to another building down the block with a much bigger footprint, because we will have such a big call center operating,” Kahn says.

He anticipates hiring an additional 100 employees just to handle the phones.

“All told we will be hiring several hundred people to get ready for all of these changes. We’ve grown a lot over the last year.”

One of the signs of that growth is the number of calls they get from people asking questions about how exactly all this Obamacare stuff is going to work.

Fernando Alvarez answers the phone in Spanish. On the other line, a woman has a question about a pamphlet she received in the mail saying she would have to pay a fine if she didn’t get health insurance. It turns out she is undocumented, which means she cannot participate in the state exchange and so she can’t be fined. But her children are subject to the fine because they're legal residents.

L.A. Care expects to sign up 20,000 new customers in the first month. And that’s just in L.A. County. Kahn expects an increase in annual revenue of $60-80 million from new customers. Nationwide, 7 million people are expected purchase health insurance through the state exchanges. And dozens of small companies are offering plans. More than a quarter of insurers are new to the private insurance market. So why would some of the nation’s largest companies decide not to compete for these new customers?

“The fear is that you will only get sick people," says Kahn. "And that doesn’t work. The problem with the current market is they only let healthy people in. And so you want is you want a blend.”

Larger insurers like United, Cigna and Aetna are waiting to see if that blend contains enough healthy customers to turn a profit.

But some large companies are participating in the exchanges.

“Blue Cross Blue Shield Plans are going to be in almost every exchange in the country and I’m very pleased and proud that that’s the case,” says Andrew Dreyfus, the CEO of Blue Cross Massachusetts.

He was instrumental in rolling out Massachusetts’s 2006 Health Reform Law, which was a model for Obamacare.

"Which is why I think the federal program will work if we give it a fair chance,” says Dreyfus.

Today, 98 percent of everyone in Massachusetts has health insurance. Dreyfus says that getting to that level of coverage took years. And initially large companies stayed out of the market in Massachusetts.

“Major social change, and major government programs like the Medicare program or Social Security or Medicaid, all these programs really took years to be fully implemented and fully accepted," he says.

Based on his experience, Dreyfus believes that eventually state exchanges will not be seen as a risky experiment, but simply a routine way to shop for insurance from companies -- big or small.